Hugh Savill, Director of Regulation, ABIIn an earlier blog I compared trade negotiations to a barn dance. They are also like the primary school obstacle race. To win, you have to clear some ramshackle but surprisingly tricky obstacles - in the right order.
The kind of obstacles to international trade faced by insurers are:
- Restrictions on ownership of overseas insurers, for example in India.
- Rules tying capital within a jurisdiction, for example US collateral requirements for reinsurance.
- Localising data protection or data security laws – China this time.
Financial services are among the UK’s most successful exports, totalling 3.5% of GDP in 2015 – and these figures do not take account of the work of UK-owned overseas subsidiaries. If the UK is to reap the positive benefits of Brexit, and to make the most of our expertise in financial services, we need trade mechanisms to break down the obstacles that exist for financial services.
At the moment, the debate about trade is largely about trade in goods. But how can the UK most effectively open markets for trade in financial services?
Financial services are different. Bank loans are not loaded on to container ships and subjected to tariffs at the docks. Nobody worries about the local content of an insurance policy. Very few bond issues are inspected for agricultural diseases.
But these issues are the basis of all Free Trade Agreements. Financial services are only just beginning to be included in FTAs. And the market access granted is limited.
In the main, obstacles to trade in financial, services are assembled and lovingly maintained by financial services regulators.
They are encouraged in this work by the very wide prudential carve-out in the WTO’s General Agreement on Trade in Services – known to its admirers as the GATS.
Meaningful multilateral trade negotiations on these issues will require a fundamental re-think of the world’s trade liberalisation tools. Ideally we need to re-negotiate the GATS. But this may take a little while. And right now the UK has a few other issues to worry about in the trade arena.
For the time being we believe that market access will be best achieved slowly, through bilateral negotiations where both Finance Ministries and financial regulators are involved. The Economic and Financial Dialogues that the UK holds with the Indian and Chinese Governments are a good model – and they can take place while we are still EU members. Progress has been made in opening the Chinese insurance market, and in reducing Indian ownership restrictions. They should be extended to other countries with sizeable financial services industries such as Japan and the US.
And hopefully in due course the EU. But that is another obstacle race.
Hugh Savill is Director of Regulation at the Association of British Insurers (ABI) and was a senior official at the Department of Trade and Industry for 20 years.